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Stock futures drift lower ahead of packed earnings week

Bloomberg

Sell ​​signals that are anything but useless on the Unchartable 2021 Stock Market

(Bloomberg) – If you bailed out on Bollinger Bands, walked away from relative strength, or took direction from the directional market indicator in 2021, you paid for it. It’s a testament to the straight-up trajectory of stocks that pretty much all the signals telling investors who have done anything but buy have done them a disservice this year. In fact, when applied to the S&P 500, 15 of the 22 chart-based indicators followed by Bloomberg have actually lost money, back-testing data shows. And they are all doing worse than a simple buy and hold strategy, which is up 11%. Of course, few investors deploy technical studies individually, and even when they do, they rarely rely on a single charting technique to support decisions. But at least the exercise is a reminder of the futility of naming a market topper in a year when the trip was basically a one-way trip. “What we’ve seen this year is a very strong market that didn’t. A long-short strategy based on the technique is down 7.8% since the end of December. “All overbought and oversold indicators, both mine and anyone else’s, were not getting many buy signals,” but a lot of sales, “he says. The temptation to book profits and bail becomes hard to resist after the S&P 500’s best 12-month rally since the 1930s. Rising fear is a mountain of graphs signaling a market leading the way. Earlier this month, the index rose 16% above the 200-day average, a performance that had only occurred a handful of times in the past three decades prior to December. In addition, the benchmark’s relative strength index is above both weekly and monthly the 70’s, a sign that the market has moved too far and too fast. sales orders. Hedge funds, for example, became the starting position this month, pouring out of tech stocks a few days before Apple Inc. and Amazon.com Inc. report financial results. But avoiding the stock market for a period of time has proven to be the most risky. commitment of all. The S&P 500 has to cut more than 5% this year. At the same time, missing the big days is more punishable than ever. In the absence of the top five sessions, the gain decreases from 11% of the index to 2%. “To guess that now is the right time to get out of the market, you might as well go to Las Vegas,” said Mark Stoeckle, CEO officer at Adams Funds. “That’s just as much risk.” Bloomberg’s back-testing model buys the S&P 500 when an indicator signals a “buy” and holds it until a “sale” is generated. At that point, the index is sold and a short position is formed and held until a buy is triggered. A strategy that follows RSI signals is down 10% this year. The damage occurred as stocks entered the year with unbridled momentum hitting a sell order. The transaction has been in effect ever since, as the S&P 500 never pulled out fast and long enough to flash. The moving average convergence / divergence indicator – better known as MACD – has lost 9.8%. Five of the nine trading signals the model produced were bought and four of them lost money. In addition, all four brief recommendations were losers. So high is the cost of momentum betting in a market where the S&P 500 has already eclipsed the average Wall Street strategist’s year-end target. conditions have been absorbed by the market with more force, or at best with a pause, ”said Jeff deGraaf, co-founder of Renaissance Macro Research, who was the top technical analyst in the annual survey for 11 years through 2015. Institutional Investor. oversold terms are useless without first defining the underlying trend of the market. Williams, who has been trading since 1962, agrees. Technical analysis tools aren’t broken, he says, but in a bull market as resilient as this one, investors need to use them in the right context. “does it,” he said. “I have a hammer that can build a house, but if I use the hammer to dig a hole in the ground, it will be very difficult.” For more articles like this, visit us at bloomberg.com. with the most trusted business news source. © 2021 Bloomberg LP

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